Does it hurt your competetiveness? I don't think so. Do they want you to repeat your internship? I think that is something that YOU need to decide. Of course, if the residency doesn't have a spot open they would require you to start "at the beginning." Here are some things to consider when confronted with this situation.
1) If your committment is not finished, you must reapply to the military GME board. The results of this will not be released until well into the civilian interview season. Therefore, you could potentially waste time and money applying and interviewing only to find out that the military isn't going to let you go back to residency at that time.
2) If you don't want to repeat an internship, you must find a second year position somewhere. These can be hard to find out about, but there is a website that lists most openings. (Sorry, I can't think of what the site is right now.) Try contacting a nearby medical school or surgery residency program director, they will usually help you out.
3) If you get a second-year spot, the residency must be willing to help get you "up to speed" since you've been out of surgery for a while. If at all possible, save some leave to take in June before you start residency. That way you can start a little early and get a jump start on catching up to your fellow residents. Most residencies should be happy to do this if they find you to be a good candidate who will fit in well. Remember that you'll be filling a vacancy, thereby helping to spread out the work.
4) Securing a civilian residency with committment remaining to the military is called a "redeferment." You completely separate from the military during your residency. This process, separation, can be a pain in the butt and takes quite a while. The minute that you secure a residency position, you have to bust your butt to get the ball rolling.
5) All of these have to be accomlished while you are still doing your job. That means that you may have deployments, military training, etc. to deal with while trying to get all of this done.
All of this being said, it is certainly do-able. I'll give you a few details about how I did it. Personally, I had decided to repeat an internship because I didn't know how comfortable I was going to be getting back in the saddle after 2 years. Plus, I didn't know how to find out about second-year openings. I held off on most of my interviews until after receiving confirmation that I got a redeferment. So I didn't waste much money.
At one of my first interviews, I was offered a second-year spot. The residency had an intern quit because he decided to do anesthesia. I knew that the residency was awesome and even though I had reservations about my "green-ness", I accepted the position.
Between deployments to Saudi Arabia, I managed to get all of the paperwork done and arranged the move. I barely got all of this done and I had quite a while to do it since I got my residency spot in January. I'm very pessimistic that this can be easily done if you don't find out until Match Day.
I started 2 weeks early so that I was able to get a little more comfortable before being expected to SUPERVISE the new interns. In the end, it couldn't have worked out better. I am so glad that I didn't repeat my internship. Everything came back to me quickly, both operatively and on the patient-care end. I've had an incredibly good time in residency.
One of the things that I haven't said...one of the benefits of this course of action...you actually made money during your time on active duty. Little to no debt thanks to HPSP, time and money during GMO/FS stint to buy things or pay off what debt you have, etc. So, you may be much more comfortable financially than your fellow residents.
So, there are many factors to think about. A lot of this depends on your personal choices and comfort with returning to residency. In the end, it can definately be done. It just takes some leg work! Good luck.
